Activists Help Sink Both Ashford REITs

chart01Activists, Rambleside Real Estate Capital, a NY based investment company, and Sessa Capital, also a NY investment firm, appear to have picked the wrong fight and are now helping sink both Ashford REITs, Ashford Hospitality Trust and Ashford Hospitality Prime. In the past few days, Rambleside and Sessa have made their discontent with the lodging REITs publicly known. Both Ashfords are advised by the same management team.

Last week, Ashford Prime’s share price plummeted by 18% and Ashford Trust’s by 16%. On Wednesday, January 13, Ashford Prime saw their most substantial drop of 10%. On Monday, January 18, shares fell by 4%. Obviously, investors are fleeing, rather than jumping in.

chart02I’ve never been a fan of external management and I welcome any initiative designed to correct misalignments between management teams and their REITs. Rambleside Holdings, who owns less than 1% of Ashford Trust, complained about the low share prices and urged the company to make a share buyback. They also asked the management team to remove the termination advisory fee.

At the same time, Sessa Capital, who owns 8.2% of Ashford Prime, has stated a desire to nominate a slate of independent board directors and begin a sale process. Sessa reports they are tired of board and management taking “one self-serving action after another.”

Ashford Prime

Ashford Prime’s issue is deeper and not restricted to the company alone. In the past twelve months, Ashford Prime lost 40% of its value. Their peers experienced the same thing. On average, lodging REITs fell 40% during the same period. The valuation metrics of lodging REITs have fallen to ridiculously cheap levels. Currently, other REITs are trading at 9x AFFO, on average, while Ashford Prime is trading at 7x AFFO.

chart03.pngPerhaps, the biggest source of frustration for shareholders is the fact that Ashford Prime never lived up to what it was meant to be. In 2013, Ashford Prime was spun off from Ashford Trust to provide shareholders with added value. Montgomery Bennett, Chairman, and Chief Executive Officer of the Ashfords, had intended to capitalize on the lodging sector’s good fundamentals. He believed it would be most beneficial to split into two companies with well-defined goals. Ashford Prime invests in luxury hotels, as well as gateway and resort locations, while Ashford Trust is more open-targeted and invests across a variety of segments in the hospitality sector.

chart04In summary, there are several uncertainties that could lead Sessa Capital to a dead end fight that results in lost money on the initiative. First, Ashford Prime’s advisor is also its shareholder and owns a significant ownership. Second, lodging isn’t in favor of the market. As a result, even if they sell the assets, they are unlikely to realize the full net asset value. Finally, the activists’ plan B, which includes selling stock, isn’t the right answer at the current time. Stocks have dropped so significantly that if they did this, they would have no choice but to realize losses.

Source: Ashford Hospitality Prime (NYSE:AHP), Ashford Hospitality Trust (NYSE:AHT), Fast Graphs, Yahoo!Finance.

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Hotel REIT stocks do not deserve to be in the bottom

Hotel REITs have under-performed the broad REIT market in 2015 (thus far), in a big way, returning 15% less than the broad REITs index.While sector fundamentals forecasts suggest more growth is ahead,

Sourced through Scoop.it from: seekingalpha.com

Although our analyses have shown that hotel REITs are a top performing sector in Q2 (which will likely continue in Q3) operationally speaking, we’ve been struck by the underperformance of their stocks.

Growth stocks such as Pebblebrook, DiamondRock, and Chatham are in the bottom 10 percent of performing REIT stocks year-to-date. The question is, how can a top performing sector, which sports higher growth rates of cash flow generation and profitability than most property sectors, be in the bottom position in terms of stock performance?

Oversupply doesn’t seem to be an industry concern in the short-term (despite being the first concern of a real estate investor). Nevertheless, Pebblebrook’s CEO, Jon Bortz, addressed the concern of a potential oversupply in their Q3 conference call, “Supply continues to be restrained with the three months trend at just 1.2% and our expectation is that demand will likely continue to outpace new supply over the next two to three years.”

Demand has exceeded supply, and although new supply is expected over the next months, supply should not catch up with demand in 2016.

Occupancy peaks could be a concern, but hospitality performance isn’t only occupancy. The sector has reached an occupancy in the low eighties and many people, including some in the industry, don’t believe it can go any higher. In contrast, occupancy is not the only important metric for internal growth since room rates (ADR and RevPAR) can increase.

Self-storage is a property sector that is faring well operationally and in contrast is also performing well in the stock market. Like lodging, self-storage has been faced several times with fears of oversupply, although they don’t seem to be as strong as there are clear bottlenecks in the industry that will slow supply down.

In summary, it’s not clear why investors have been dumping lodging REITs. They recently suffered a major drop after Pebblebrook indicated softer results in Q3 and adjusted down its Q4-outlook. The main reason for the adjustment was softer growth in international inbound travel, lackluster data on global growth, and weaker job growth.

Source: Pebblebrook Hotel Trust (NYSE:PEB), DiamondRock Hospitality Company (NYSE:DRH), Chatham Lodging Trust (NYSE:CLDT), Seeking Alpha

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

U.S. REITs – Pebblebrook Prompts New Lodging Selloff (Part 2 of 2)

chart04

Click here if you have not read Part 1.

This is not the first time this year that hotels suffered a major selloff. This August, when the market was still on ‘summer vacation,’ hotel REITs suffered one of the biggest drops in any sector. Share prices for the sector dropped by a median of -8.5 percent. In September, hotel REIT shares also fell by 6 percent. Following a rebound in October, they suffered new losses last Friday.

This new attack has positioned lodging unfairly with timber. From a sector standpoint, lodging REIT stocks has been one of the worst year-to-date returns. The difference is that — not to say the least — timber metrics have been suffering, while the lodging industry environment continues positive.

Compared with the same period last year, third-quarter results have been softer than those for second-quarter; yet good, distribution-boosting components have grown more slowly. Revenues increased by 27 percent in Q3, as opposed to 34 percent in Q2. Same-property-hotel EBITDA, an internal profitability metric, increased 8.6 percent, compared with 10.4 percent in Q2. FFO per share increased 22 percent, compared with 29 percent in Q2. As we mentioned, AFFO-per-share growth projected for 2015 has fallen by few basis points, to 27 percent.

Pebblebrook remains on the high end of the valuation range among lodging REITs, second only to Strategic Hotels & Resorts (NYSE:BEE). As of October 23, it has a price-to-AFFO ratio of 17× and a sector median of 13×. As to dividends, Pebblebrook has increased its dividend rate by 35 percent and dividend yield is around 3.7 percent. The company has, as we have observed, been part of a group of REITs that enjoy ‘premium’ valuation because of strong quarterly results and experienced management; also, its US$2½ billion market capitalization puts it in a good size position. We could see Pebblebrook as a top hotel REIT in the mid- to long term.

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Note: Last table as of 23 October 2015.

Source: Fast Graphs, Pebblebrook Hotels Trust, Yahoo Finance

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

U.S. REITs – Pebblebrook Prompts New Lodging Selloff

chart01Pebblebrook Hotels Trust (NYSE:PEB) has ranked among the highest-performing hotel REITs — but not because chairman, president and CEO Jon Bortz served in similar functions at another reputable publicly-traded hotel REIT, LaSalle Hotel Properties (NYSE:LHO), for over a decade. In fact, in Q2 Pebblebrook had a fine metrics performance ensemble associated with dividend generation potential, but upon the release of Q3 results on October 22, the market threw uncertainty upon its performance.

Pebblebrook decreased the higher end of its 2015 guidance for adjusted funds from operations (AFFO) (which has dropped US$0.01, from $2.47-2.51 to $2.47-2.50) and also lowered both ends of its guidance for same-property RevPAR growth rate by 100 basis points. The guidance for the hotel industry has not changed. Above is a sample of their Q3 results.

During Q3, among internal growth metrics, same-property occupancy dropped 1.3 percent to 88.4 percent from Q3 2014, as also did that for the last nine months. On the other hand, same-property RevPAR and ADR increased 4 and 5.3 percent respectively.

chart02Comparing the magnitude of the adjustments — which appeared more like fine-tuning — with a major hotel-price drop (-3.2 percent last week), the market appears to be overreacting. Industry demand has advanced more than supply, internal growth metrics — excluding occupancy — have advanced, and cash flow and profitability have increased.

What caught our attention, however, is the changes in long-term trends that Pebblebrook management indicated. They believe that, owing to a strong dollar and lower growth abroad, international inbound travel will weaken, affecting gateway cities where company hotels are located. The strong dollar also affects US travelers who use weaker currencies as an opportunity to travel abroad — and doubles down the negative effect over the domestic hotel industry.

To be continued…

Mean Boy, Mr. Market Cornered and Beat Down Lodging REITs Last Week

In year-over-year results, the U.S. hotel industry’s occupancy decreased 1.4% to 70.7%; its ADR was up 3.6% to $122.32; and its RevPAR increased 2.2% to $86.46.

Sourced through Scoop.it from: www.hotelnewsnow.com

Lodging claimed our number one spot for the worst performing year to date Real Estate Investment Trusts (REIT) investments last week. Although the Fed’s decision prompted a buying spree amongst most REIT stocks, it did not positively affect the lodging segment. All of the lodging REITs that we track were painfully singled out and crushed by Mr. Market last Friday. In fact, lodging even took over Timber as the worst performing REIT category in 2015.

Lodging was one of the hardest hit REIT stock segments during the infamous August selloff. However, it was one of the fastest to rebound. Only days after the selloff, lodging REITs bounced back to the levels they had previously enjoyed. It goes without saying that the market has been extremely volatile recently. During the second half of August, the Volatility of the S&P 500 (^VIX) spiked over twenty-five for the very first time since September 2011. I believe that lodging would likely be in first place if there were a chart that measured the volatility of each REIT segment.

I am not typically concerned with short-term market movements. That being said, I have closely followed the highs and lows during the past few weeks, and this extreme volatility has grabbed my attention. The lodging industry has enjoyed a good run in the past. If there is a business type that that will benefit from a rising inflationary circumstance, that sector is lodging. The reason is due to the fact that lodging has an incredible ability to adjust rates quickly.

One of the main factors causing the problem is that many cities have confirmed a weakness in occupancy figures, or their available daily rate has stalled. These dynamics may have caused investors enough concern to stay away. This brings up the question, ‘Has the peak in industry fundamentals already been attained?’

Amongst the eighteen lodging REITS that we research from a valuation standpoint, most price-to-FFO ratios have logged in between 10x, and 15x. In addition, divided yield has recorded as high as 7.7 percent, with a 4.8 median.

Source: Fast Graphs

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Why Do Lodging REITs Offer Great Buy Opportunity?

Canaccord Genuity analyst Ryan Meliker warns investors not to read too much into the latest reports from real estate investment trusts in the lodging industry. They reported an avearge 14.6% rise in revenue per available room (also called RevPAR) for the week ended Sept. 5. It seems that the timing of the Labor Day holiday […]

Sourced through Scoop.it from: blogs.barrons.com

When it comes to lodging, supply still has to catch up with demand, which is causing the industry itself to continue to enjoy strong fundamentals. All of this is in contrary to what took place with their stocks within the past month. Record figures have been posted for aspects such as occupancy and there have also been significant increases in revenue per available room (RevPar). It has been estimated by CBRE that by the time 2017 rolls around, equilibrium between supply and demand will likely be reached.

Stocks in lodging, just like any other REIT sector, dropped and have been down by approximately 15 percent this year alone, which has practically created a great buy opportunity. Out of the 18 total lodging stocks that we typically track, only the following two had a positive performance:

*Strategic Hotels & Resorts (NYSE:BEE)

*Apple Hospitality REIT (NYSE:APLE)

On the other hand, however, the following two stocks were down by more than 25 percent:

*Ashford Hospitality Trust (NYSE:AHT)

*Host Hotels & Resorts (NYSE:HST)

The market was quick to realize losses in lodging stocks were excessive. In the end of August, the sector saw a decrease of approximately 6 percent and a rebound of the same order of magnitude within the same week. 

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.